This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

August 17, 2011

Ladenburg Thalmann to Buy Securities America for $150 Million

Ladenburg Thalmann Financial Services (LTS) said Wednesday that it had agreed to acquire Securities America from Ameriprise Financial (AMP) for $150 million in cash in a deal that the company said should close by year-end 2011.

In addition to the initial cash payment, Ladenburg Thalmann said in a news release that it may make additional cash payments to Ameriprise should “certain performance targets” be met by the independent broker-dealer during 2012 and 2013.

In a joint interview, Ladenburg President and CEO Richard Lampen said those targets had to do with “certain growth metrics” from Securities America, while Securities America President Jim Nagengast (left) said that he and his senior management team will remain with the Omaha-based firm after the transaction, and that the news of the acquisition had been “extremely well received” by both Securities America representatives and employees.

“The most important thing” to Securities America management, Nagengast said, was that there would be “no disruption to our advisors. We’ve achieved that, and more,” while noting that with the acquisition, Securities America will be aligned with a “strong business partner that understands the independent space” and that has a “commitment to our advisors and to our leadership.”

As for Ladenburg’s interest in Securites America and its 1,700 reps, Lampen said that “in April, when we learned one of the elite companies in the business had become available, we jumped on it,” calling the acquisition a “great growth opportunity.” He promised that Securities America would be run as a stand-alone business, similar to the way Ladenburg runs its two existing IBDs, Triad Advisors and Investacorp.

“The real success we’ve had” with those broker-dealers, he said, is that they are “standalone companies with their own cultures, run by their own longstanding management teams,” and pledged to “continue to support” that approach once the Securities America deal is finalized.

Lampen also said Ladenburg was impressed by Securities America’s capabilities, particularly in technology and practice management, that could collectively benefit its other BDs, while Nagengast said a benefit to Securities America reps would be gaining access to Ladenburg’s and its existing BDs’ strengths in advisor-friendly trust services, investment products and asset-management expertise.

Ladenburg’s commitment to the independent advice space, said Lampen, is evidenced by the fact that “Ladenburg has done three of the five biggest acquisitions in the space,” and suggested that growth in that space will continue over the next five years.

Motives for the Deal; Next Steps

Philip Palaveev (left), who studied the independent broker-dealer community in his days as a consultant at Moss Adams and who is now president of Fusion Advisor Network, called the acquisition “not a normal strategic move” that was “forced by the disaster” of Securities America’s private placement woes. The “massive amount of the settlement” resulting from the sale of fraudulent Reg D securities “forced Ameriprise to sell; this was borne out of necessity” and represented “the best deal they could find, not necessarily the best strategic move for the firm.”

Palaveev says his first reaction was to “look at Ladenburg’s financial statements…the entire company combined has $9 million in cash, but they’re writing a $150 million check to Ameriprise.” More specifically, he said “This is Dr. Frost acquiring Securities America,” referring to Dr. Phillip Frost, Ladenburg’s principal shareholder and chairman; according to the news release announcing the deal, “the transaction will be financed by an affiliate” of Frost.

One of the big questions is whether Securities America will be able to retain its 1,700 representatives (that number is down from the 1,850 reps that Securities America reported in the 2011 Investment Advisor Broker-Dealer Directory). With the newly announced acquisition, Palaveev wondered, “will Securities America reps feel like they’re jumping from the grill to the flame?”

On the other hand, Palaveev points out that following Ladenburg’s acquisition of Triad Advisors and Investacorp, “they didn’t seem to lose any advisors; what you hear is that they leave them to run the operations as they were.” However, he wonders whether in the Securities America Case, “if you acquire BDs that were in trouble and leave them alone, will they get in trouble again?”

Disclosing that his firm is in the process of recruiting some Securites America reps, Palaveev wondered about the benefits of a larger network of BDs. There is an advantage, he said, “but only if they negotiate together; that dynamic will be interesting to watch.”

The next step, he said, will be Securities America advisors :making up their minds—what are they being offered, what story are they being told? We’ll see in the next couple of months.”

In a statement on the acquisition, Ladenburg said that based on the trailing 12-month period, the combined company would have had approximately $675 million in revenue, a total of 2,700 independent FAs and approximately $70 billion in total client assets.

With the acquisition, Ladenburg’s footprint in the IBD space becomes much larger. According to Investment Advisor's2011 Independent Broker-Dealer directory, adding Securities America to Ladenburg's existing independent broker-dealers—Investacorp and Triad, would give it a total of 2,771 reps, and $616 million in revenue (as of year-end 2010).

Just ahead of the Securities America sale, parent company Ameriprise Financial agreed earlier this month to an $80 million class-action settlement involving the sale of allegedly fraudulent investments. Once U.S. District Judge Royal Furgeson in Dallashad signed off on thefinal settlement approval in the case of Bilitteri vs. Securities America, experts concluded that Ameriprise would have an easier time selling the embattled broker-dealer.

“We are very pleased to put this matter behind us,” said Janine Wertheim, president of Securities America Advisors, in a statement released earlier this month. “Although thousands of people and companies were harmed by the alleged fraud committed by the principals of Medical Capital and Provident Royalties, investors who purchased these programs through Securities America will receive a meaningful return of their investment.”

On March 18, Furgeson initially rejected a class action settlement by multiple claimants who said they had lost $400 million in gas investments from Provident Royalties LLC and medical receivables debt from Medical Capital Holdings Inc. that were sold by Securities America reps. Both companies have been charged with fraud by the Securities and Exchange Commission. Both are also in receivership.

Earlier this year when announcing strong first-quarter results, Ameriprise said that it was looking to sell Securities America. Results of $241 million, or earnings per share of $0.94, versus net income of $226 million, or $0.85 a share, in the prior year included an after-tax charge of $77 million, or $0.30 a share, for the Securities America legal matter. Excluding the charge, the company would have seen EPS of $1.35.